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Why economic reform is crucial

Israel’s dysfunctional political and economic system is perpetuated by an iron triangle of oligopolistic businesses, militant labor unions and huge unaccountable government bureaucracies. It is supported by a strong leftist ethos and a belief in big government.

	Binyamin Netanyahu receiving an economic reform action plan from ICSEP Director Daniel Doron

While Israel has a number of successful, globally competitive enterprises operating on market principles, many of the locally oriented industries are monopolies or cartels that face little or no competition. These businesses lack the market induced discipline that comes from competition and from accountability to shareholders. Instead, they focus on trying to restrain competition by keeping government bureaucrats “satisfied” and buying labor peace by “feather bedding” and inflated salaries.

As a result, Israel has suffered from high inflated costs, high unemployment, low productivity and slow real wage growth. In the past decade, Israel’s productivity growth has been a paltry 0.6% per annum. Had this rate averaged the same 3%, annual average market oriented economies achieve, Israel’s cumulative GDP would have been $100 billion higher, the equivalent of over 50 years of US military aid to Israel!

A competitive business environment could reduce by about one third the cost of all consumer goods. Competition-generated lower prices that would considerably increase purchasing power would enable millions of Israelis, now dependent on government supplementary income, to make ends meet. It would in turn, enable government to cut welfare related costs and taxes. All these changes would greatly reduce the number of the Israeli poor.

Basic structural reforms will also enable market forces to free the tremendous productive potential of the Israeli worker and entrepreneur (evident in its high-tech industry), propelling Israel into the ranks of the world’s most prosperous countries.

Economic reform must therefore become a top national priority.

It is ICSEP’S crucial role to facilitate reforms, and to reduce resistance to them.

ICSEP also provides a compelling alternative to the prevailing ethos of a government-dominated welfare state. In the words of former Finance Minister Netanyahu: “ICSEP is essentially alone in undertaking these tasks.”